Banking Relationships
Banks are facing great change and in recent years the industry has been described as one in crisis. One reflection of this is the disappearance of the local bank manager who knows his customer and is able to commit the bank to lend. Against this background a club needs to be more professional in its dealings with the bank. If the club is looking for a new loan for refurbishment or to replace a brewery loan with a bank loan it is useful to look at the club’s proposals from the bank’s viewpoint. A neat mnemonic to remember what banks are looking for when lending is ‘CAMPARI’:-
Character: The essential here is trust. Background details on the club are considered, the club’s borrowing history, the track record of the current committee and management are essential. Banks are particularly cynical if you want to move from another bank so make sure your reasons for moving are valid.
Ability: Are you able to do what you are planning? Are you capable? Does the plan make sense?
Margin: A big margin never made up for a bad loan. The banks are seeking better returns but the margin remains a matter for subjective judgement and negotiation. A well managed and supported members club has many strengths over other types of organisations; these strengths should prove attractive to banks if part of a well presented plan.
Purpose: There must be a clearly stated reason for the finance presented in a practical and simple plan. In addition is the split of the club’s funding structure between member’s funds, brewery loans, term loans and overdrafts well thought through. An overdraft is the most frequent form of bank debt, however, it is often abused by both borrower and bank. An overdraft is supposed to be temporary, for example, to provide finance to cover the purchase of stock for a peak sales period.
Amount: Neither too much nor too little should be requested. Too much reflects on the committee’s confidence in their plan, too little could result in future funding problems.
Repayment: The banker must achieve repayment first and foremost. The term of repayment, say, five or ten years must be realistic in relation the proposal.
Insurance: The bank will seek the appropriate security as a second means of repaying the loan should things go wrong, for example, a mortgage on the club’s premises.